over 2 years ago

    Comparing Financial Statements cover image

    Image by Scott Graham from unsplash

    Comparing Financial Statements

    Table of Contents  📝 

    Financial Performance

    1) Revenue performance

    2) Net income performance​

    3) EPS performance​

    4) Gross Margin performance​

    Financial Health

    5) Shareholder equity (health)​

    6) FCF (health)

    7) Current ratio (health)​

    8 ) Debt/equity ratio (health)​


    9) What does this all mean?


    Fundamentals are concerned with a company's financial performance and financial health. I've broken down 8 key fundamentals into two parts: Financial performance & Financial health.


    YoY = Year over Year
    3Y = last 3 years
    ttm = trailing twelve months
    mrq = most recent quarter
    growth rate = rate of change by %

    *All chart data were aggregated as of January 2022 and will change as new data comes in.

    1) Revenue Performance

    Although Toyota generates the most revenue, Tesla has much stronger revenue growth rates. Long-term investors want to see increasing revenue growth as it reflects rising demand for the product or service.

    RED FLAGS 🚩: Ford and General Motors' declining revenue growth is a red flag and should be further investigated if you are interested in buying the stock.

    2) Net Income Performance

    Toyota's total Net income might look impressive but its growth rates are average compared to Tesla. Net income growth rates tend to slow down as a company starts to mature.

    RED FLAGS 🚩: Ford's Net Income growth may look good year over year, but the long-term chart tells a different story.

    3) Earnings per Share performance

    Toyota's massive EPS is a huge reason the company is able to pay a 2.25% dividend to shareholders. However, Tesla's EPS growth rates suggest they will eventually catch up and surpass Toyota. 

    RED FLAGS 🚩: Looking at the long-term chart you can see how Ford and Tesla went opposite directions in 2018. If Ford continues to trend down this will be a huge problem for shareholders. 

    4) Gross Margin performance

    Investors love to see superior gross margins because they are direct reflections of a companies internal financial performance and future profitability. Margins are about retaining revenue whether it's growing demand, reducing costs, or both at the same time.

    5) Shareholder Equity health

    By now the same theme emerges between these automakers. Toyota leads net equity while Tesla leads equity growth rate. Equity growth reflects a healthy balance sheet.

    RED FLAGS 🚩: Negative equity growth in the short term is common and not always a red flag but, long-term negative equity growth is a huge red flag.​

    6) Free-Cash-Flow health

    Toyota outperforms in all areas of cash flow because they are a well-established company and aren't rapidly burning through cash to build new factories. This way they are able to return a chunk of their earnings to shareholders in the form of dividends.  

    RED FLAGS 🚩: If a company's cash flows are consistently declining and they are not re-investing in new technology, infrastructure, or paying out dividends, there's an underlying red flag.

    Free cash flows move in cycles because the industry demand is cyclical, meaning, demand is greater at certain times of the year. However, companies with healthy cash flows are more resistant to rising interest rates, inflation, and recessionary environments. 

    7) Current Ratio health

    The current ratio is a financial health metric that reflects the number of Assets per Liability. Although Tesla barely leads this category, it's come a long way from being last at the beginning of 2018. This change in character from 2018 reflects strong financial management

    RED FLAGS 🚩: A current Ratio under 1 is a red flag because that would mean a company has more liabilities than assets.

    8) Debt to Equity health

    Debt to Equity ratios are a quick measure of financial health and should ideally be below 0.5 meaning debt is less than 50% of Equity. The lower the better. Tesla and Toyota are in good standing as their debt/equity ratios reflect consistency in paying off debt while maintaining equity growth.

    RED FLAGS 🚩: Ford and General Motors are showing some red flags as their debts exceed their shareholder's equity.


    When looking at the data as a whole, it's clear that Tesla's growth rates are much stronger than its competition while still maintaining a healthy balance sheet and keeping costs moderate. This translates into Tesla's business slowly gaining market share where Ford and General Motors are showing red flags. Toyota is a solid auto manufacturer that pays a nice dividend but the real question is whether holding Toyota stock will give the same future value as holding Tesla stock?

    Charts and Data from https://www.macrotrends.net/stocks/charts/TSLA/tesla/financial-statements

    Related Blog Posts​A Path to Generational Wealth​​Identifying Competitive Advantages​​Fundamental Analysis